Court Enters Judgment Against New Jersey Couple for Overcharging the Military for Spare Vehicle Parts

PHILADELPHIA – U.S. Attorney William M. McSwain announced that a New Jersey couple has been ordered to pay $232,891.37 to the United States for overcharging the military for light assemblies. The defendants, Moorestown, New Jersey residents Babu Metgud and Shubhada Kalyani, operated Shubhada Industries, a defense contractor. The United States, as the plaintiff, moved for summary judgment against Metgud and Kalyani. In granting the United States’ motion, the district court entered judgment against the individual defendants, awarding damages and imposing the maximum penalty allowable under the False Claims Act.

The case arose from a contract in which Shubhada Industries agreed to manufacture light assemblies for munitions vehicles for the Defense Logistics Agency. Instead of actually manufacturing those parts, Shubhada purchased them from a third party and charged the government a total purchase price of $73,842—which amounted to a 5,400 percent mark-up of the cost price, according to the court’s opinion. When the government questioned the cost, Metgud justified it by explaining that costs sometimes seem very high “to untrained eyes.”

Under the False Claims Act, a person who causes false or fraudulent claims to be submitted to the government for payment is liable for three times the government’s damages, plus civil penalties for each false claim. The court’s judgment consists of three times the amount the Defense Logistics Agency paid, plus a civil penalty of $11,000, which the court noted was “at the top of the statutory range.”

In imposing this maximum penalty, the court explained that Metgud and Kalyani did not disclose to the agency their purchase of the light assemblies from someone else. In addition, the court opined the individuals “have not been forthright or cooperative in the Government’s investigation of the claims alleged in the amended complaint,” and seemed to “shrug off” the investigation and the court proceeding.

 “Those who do business with the government must treat taxpayers fairly,” said U.S. Attorney McSwain. “This case demonstrates my Office’s commitment to holding accountable defense contractors and others who try to game the system for personal profit at the military’s expense.”             

The case is significant because the government, as the plaintiff and moving party at summary judgment, obtained a judgment on the merits and without a trial. It is also significant because the district court’s judgment was based in part on its conclusion that it could draw an adverse inference against the individual defendants who invoked their Fifth Amendment right against self-incrimination.

Assistant U.S. Attorney Michael S. Macko handled the case, which arose from an investigation led by the United States Department of Defense, Defense Criminal Investigative Service.